If you haven't walked through your local building supply store or tried to hire a contractor in the last two years, then you're in for sticker shock when you do.
A steep hike in lumber prices began in 2020, peaking in 2021. However, just as we finally see prices decline, lumber shortages are now driving up the cost of other materials. Interior trim and doors are up 26 percent from January 2021 to January 2022. Drywall, roofing, and paint are up 10 percent as well. Add the 5.3 percent increase in combined labor rates, and overall construction costs rose 7.2 percent nationwide during the past year. Midwestern states are experiencing more significant increases than many other areas of the country, with Wisconsin at 9.6 percent, second only to the state of New York.
During this same period, there’s been an increase in catastrophic losses related to extreme weather, including tornadoes, severe storms, floods, wildfires, hurricanes, and other natural disasters – further taxing the supply-chain issues.
What does all this mean for your Homeowners insurance?
The cost to repair and rebuild your home is hugely inflated. You may have experienced and will continue to experience, increased premiums and inflation rates on your home. Insurance companies want to be well-positioned to repair or rebuild your home to make you whole again in the event of a loss!
Therefore, now’s an appropriate time to review your home value with your agent to ensure the coverage limit still reflects its full replacement cost. Remember, your home's replacement cost often differs significantly from its current market value.
There are many different types of homeowners coverage options available to purchase. Some provide only actual cash value. More common is replacement cost coverage up to the dwelling limit. Others offer a percentage cap or extension over and above that limit. And then there’s guaranteed replacement cost coverage. So, it's essential to know what you have.
The Home and Highway's® guaranteed replacement cost coverage doesn’t have a cap. With guaranteed replacement cost coverage, West Bend will replace your home even if the cost to rebuild exceeds the current Coverage A limit shown in your policy declarations. This provides peace of mind as we prepare for these unprecedented times.
Replacement cost policies often have an inflation guard built into the policy, and the Home and Highway Homeowners policy does include inflation guard protection. Home inflation factors change annually following indications, which means your home value will automatically increase yearly with the inflation amount set by the insurance company. Unfortunately, the inflation guard may not always be adequate to keep up with the rising costs of lumber and labor. Which only emphasizes the importance of having guaranteed replacement cost coverage.
Knowing your coverage and making necessary adjustments is crucial to insuring one of your most valuable investments – your home.
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This blog was written by Amy Justman, senior personal lines underwriter. This article is intended for general educational and illustrative purposes only and should not be construed to communicate legal or professional advice. Further, this article is not an offer to sell insurance. Please consult with your licensed insurance agent for specific coverage details and your insurance eligibility. All policies are subject to the terms, conditions, limitations, definitions, and exclusions contained therein.
Sources:https://docplayer.net/225048782-360value-quarterly-reconstruction-cost-analysis-q1-2022-united-states.html
https://www.iii.org/sites/default/files/docs/pdf/state_of_the_risk_homeowners_02032022.pdf
